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The welfare impact of climate action: A distributional analysis for Italy

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  • Costantini, Valeria
  • Martini, Chiara
  • Mina, Benedetta
  • Zoli, Mariangela

Abstract

Achieving the climate targets the European Union sets requires a complex policy mix, which is expected to cause a general increase in end-user prices, especially for carbon-intensive goods. For those countries already affected by large inequalities, this constitutes a risk of further negative impacts in distributional terms. This paper contributes to the debate by assessing the distributional impacts on Italian households of a policy mix coherent with the EU climate targets. The policy instruments considered are the removal of fossil fuels subsidies and carbon taxation. The analysis is carried out by soft-linking a dynamic CGE model with a microsimulation model at the household level. The estimation of a consumer demand system includes direct, indirect, and demand-side effects of the policy scenario. We then complement the analysis on the uses-side by simulating the impacts on the sources-side, computing the burden imposed on households by changes in the returns to production factors. The overall impacts of the climate policy lead to a welfare loss for households at all levels of the expenditure distribution. However, we find that both the uses and sources-side impacts of the policy are progressive, and the sources-side effects strongly reinforce the uses-side ones. Finally, we show that reinvesting revenues in clean energy technologies is key to improving the progressivity of climate policies in Italy.

Suggested Citation

  • Costantini, Valeria & Martini, Chiara & Mina, Benedetta & Zoli, Mariangela, 2025. "The welfare impact of climate action: A distributional analysis for Italy," Energy Economics, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:eneeco:v:143:y:2025:i:c:s0140988325000040
    DOI: 10.1016/j.eneco.2025.108181
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    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D39 - Microeconomics - - Distribution - - - Other
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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